by Walid Khadduri

10-08-08 Iraq's oil industry is currently passing through a critical phase caused by political disputes. As such, it becomes impossible to determine which side is truly in charge of this vital sector.
The federal ministry of oil is supposed to elaborate policies as well as negotiate and conclude contracts with international oil companies. Meanwhile, the national oil company and its subsidiaries are supposed to run and monitor approved projects.

In reality, however, the current situation differs completely. The government of Kurdistan, for example, has interpreted the ambiguous oil-related articles in the constitution in accordance with its own desires and interests without paying heed to the federal government in Baghdad. Consequently, it has so far signed up to 22 agreements with international companies without the knowledge or approval of the federal government.
Iraq's oil sector suffers so much chaos to the point that it is impossible to determine which side is in charge of negotiating and contracting with international firms. For example, the federal government concludes agreements with international parties to sell and export a certain volume of crude oil or natural gas, while a few local groups sign agreements with other firms over the same volumes of crude oil and natural gas without the knowledge of the federal government.

This is all in the name of federalism -- while the federal system has nothing to do with the overlapping and conflicting process of decision making in this vital sector. What is more serious is the attempts by local groups outside Kurdistan to imitate this process without consulting with the federal ministry of oil. This constitutes a much bigger threat in terms of dismembering Iraq's oil policy.
What made things worse was the recent statement by Iraqi Prime Minister Nouri al-Maliki that the council of ministers was in the process of forming a commission designed to conclude direct agreements with international oil companies to develop oil fields. In other words, three entities enjoy the prerogative and authority to contract with international oil companies, which will create more chaos and confusion in Iraq's oil industry. In parallel, Iraq's oil minister confirms that the said commission will not be tasked with formulating agreements on the development of oil fields, but with granting major oil contracts such as pipelines or refineries.

The problem with identifying responsibility in Iraq's oil decision making cannot be easily overlooked since its consequences will impact the growth potentials of this vital industry in the years and decades to come. This industry will grapple with today's erroneous foundations for a long time to come.
Another factor that has contributed to the chaos lies in the discrepancy in the type of contracts awarded. The Kurdish authorities, for example, have so far awarded production sharing contracts which allow international companies to maintain a share in oil field reserves, a major demand by international firms. In parallel, oil minister Hussein Shahristani favours service contracts, whereby international companies are rewarded for their services without being entitled to any share in reserves.

But with the Kurdish authorities ultimately concluding production-sharing contracts, the ministry of oil comes under significant pressure to grant similar contracts to international companies. This chaos will create further confusion with the international companies which will inevitably try to exploit this chaos for their advantage, especially with the support of their governments, some of which have been occupying Iraq since 2003.
The Kurdish experience has also created a new precedent, not only in Iraq's oil industry, but in the entire Middle East. It has awarded contracts to companies represented by the same American political and military officials who played a crucial role in orchestrating the war on Iraq. The best examples illustrating this precedent are former Pentagon consultant, Richard Pearl, and the first American governor of Iraq Jay Garner.

The interference and interests of these two and many others have raised many questions among the Iraqi public about the real causes behind the war, more than five years after its outbreak, and the extent to which the oil factor has come into play.
Was oil the primary reason behind this war?
Were the interests of some individuals involved in decision making or execution behind their enthusiasm for the war?

The phenomenon of retired senior American political and military officers representing oil companies is common in the US but alien to the oil industry in the Middle East, especially when ambiguity engulfs these contracts as they land into the hands of certain companies without competition and through bilateral talks in which the deciding factors are the nationality of the company and the identity of its senior officials as well as their ties to the forces ruling Iraq since 2003.
The ongoing chaotic developments in Iraq are aimed at marginalizing Iraq's oil apparatuses including national oil institutions and companies as well as local experts. This is a repetition of the scenario involving the army and the police forces which led to so much chaos and destruction in this country.

The policies of excluding national oil companies and the brain-drain pushing skilled national workers to other countries will eventually lead to the same result in the oil sector. This is not to mention the risk of losing continuity and over four decades of experience in building and developing national institutions.
It is worth mentioning that the oil sector did not shape Iraq's policy under the former regime. Rather, it was its victim as the case was with other institutions. In fact, there is consensus that the officials in this sector made every possible reasonable effort to ensure the survival of this industry despite the wars, siege, and more recently, occupation and terrorism.